Is This Rally for Real?

After being down over 35% from the all time high, S&P 500 has rallied over 20% from the recent lows in just two weeks. Is this rally for real? Or is it just a bear market rally, a "dead cat bounce"? What the "experts" are saying? Has the market bottomed? Will the selling resume?

A lot of questions.

I decided to check some of the "expert" opinions about the current markets, based on the recent articles by the most popular Seeking Alpha contributors.

On March 29, a well known SA contributor James A. Kostohryz wrote an article The Next Leg Down: Another Massive Decline Is Coming. Based on his opinion, "the next leg down in the current bear market cycle is soon at hand." Not only he's predicting the next leg down, but he also seem to know exactly where this leg down will take us: "this would imply a trough for the current bear market cycle in the range (S&P 500 index) of 1876 to 1463."

Mr. Kostohryz makes some very compelling arguments to support his case, including: Cumulative loss of output, Peak unemployment, Cumulative loss of hours of production, Massive financial crisis, Loss of wealth and more. His conclusion: "It is critically important that you have the right portfolio strategy to deal with the current unprecedented economic and financial crisis." The logical conclusion is that you need to join his subscription service to have this "right portfolio strategy".

Mr. Gilburt is basing his forecast on Elliot Wave methodology, and of course, the forecast is based on a lot of conditions. This is how Elliot Wave works: it will always allow the "forecaster" to say "I was right" no matter what happens.

Of course Mr. Gilburt's conclusion is the same: join his service to make the right decisions.

As a side note, both articles have the following disclosure: "I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours." Both contributors make very bold predictions without actually having any skin in the game. None of them also has any public track record of performance.

So... two completely opposite opinions from two very well respected Seeking Alpha contributors. Obviously only one of them will be correct. Which one? It's up to you to decide.

Personally I don't buy this rally. The damage is too big, and it doesn't make sense for the bear market to last only 2 months, considering all the crisis. I believe we will see another leg down. I believe it will get worse before it gets better. How far the next leg down will take us? I have no idea, and I don't want to play the guessing game.

Fortunately for me and for SteadyOptions members, we don't need to guess who is right. We don't need to try and catch markets tops and bottoms. We don't need to time the markets.

We can make money in any market using non directional options strategies. We have proved that we can make money in any market. Here is how our strategies performed during some of the down months:

Mar.2020: S&P 500 -12.5%, SteadyOptions +3.3%

Feb.2020: S&P 500 -8.4%, SteadyOptions +26.6%

Dec.2018: S&P 500 -9.2%, SteadyOptions +17.3%

Feb.2018: S&P 500 -3.9%, SteadyOptions +3.7%

Jan.2016: S&P 500 -5.0%, SteadyOptions +10.6%

Aug.2015: S&P 500 -6.3%, SteadyOptions +11.7%

Jan.2014: S&P 500 -3.6%, SteadyOptions +22.9%

Our model portfolio is up 68.3% so far in 2020. Bull, bear - we don't care.

Recent Articles

Articles

Diversifying your portfolio is important for all investors, and currency investments are a great way to do that. However, there are a lot of misconceptions and common mistakes that first time currency investors make, and this leads to big losses.

In my early option trading days, I favored selling iron condors over selling strangles. I thought that selling a strangle was too risky because the potential loss was “undefined”. I thought this made sense because this is what I’d hear from other people that were more experienced than I was.

The good news is that if trading is your passion, then it’s possible to become a successful day trader and work from home. However, it’s not as easy as setting up shop and jumping online. There are specific steps and processes you need to have in place if you’re going to be able to make a living for yourself and have a bright career and future.

These days, everyone claims to be an ‘expert’ on absolutely everything. Apparently, it only takes having a Twitter account to be a seasoned expert on any given subject; all in all, the Internet is full of nonsense. It’s becoming harder and harder to find legitimate answers amongst the quagmire of false information online.

Our first advice to new traders is: "Learn First, Trade Later". The markets will always be there, but if you start trading without proper fundamentals, your capital will be gone very fast. The barrier to enter trading is so low today, commissions are near zero, and the whole trading game looks very promising.

Dividend payments, like oatmeal, may be smooth or lumpy. Smooth dividends are predictable, usually once per quarter. It is easy for options traders to believe these dividends are guaranteed, because they usually continue uninterrupted quarter after quarter. This also makes it easy to predict total return over a longer time span.

On April 18th I wrote part I of this article, Coming to Peace With Market Volatility. I showed how the US equity market risk premium, defined as the annual average return of the Total Market minus the return of one-month US Treasury Bills, was a large 8.37% per year from 1950-2019. That’s the good news.

The ratio calendar spread is well-known to some, but for others the risk/reward aspects are not well understood. One way to cover a short position is to own 100 shares of the underlying stock. Another, more creative way is to sell a shorter-term expiration position and buy a longer-term position.

"Who you gonna believe, me or your lying eyes?" Our members and readers know that buying pre earnings straddles has been one of our favorite strategies that produced consistent gains in the last 8 years with very low risk. Yet there is a significant number of studies showing that this strategy has a negative expectation.

Using the most popular S&P 500 ETF (SPY) to represent the US stock market, this article will look at different ways to manage equity market risk using historical ETF and options data from ORATS Wheel since 2007. We will analyze the following unhedged, hedged and allocation choices:

Navigation

Follow Us

About Us: Our options advisory service offers high quality options education and actionable trade ideas. We implement mix of short and medium term options trading strategies based on Implied Volatility.

Disclaimer: We do not offer investment advice. We are not investment advisors. The information contained herein should not be construed as an investment advice and should not be considered as a solicitation to buy or sell securities